SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 ý    QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
Quarterly Period Ended December 31, 2008
 
 or
 
 o    TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
the transition period from
         
to
 
 Commission
File Number 0-28585
 
 AuraSource,
Inc.
 (Exact
name of registrant as specified in its charter)
 
 
 Nevada
                (State
      or Other Jurisdiction of Incorporation or Organization)
              68-0427395
                (IRS
      Employer Identification No.)
 
 7377
E. Doubletree Ranch Rd. #288
 Scottsdale, AZ
85258
 (Address
of principal executive offices, zip code)
 
 Registrant's
telephone number (including area code): (480)
368-1829
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
 YES ý    
NO o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
 Large
Accelerated Filer o
Accelerated Filer o
Non-accelerated Filer o Smaller reporting
company ý
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No ý
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
 
 Class
              
              Outstanding
      at February 13, 2009Common
      Stock, $.001 par value
              
              20,300,000
 
  
  
 AURASOURCE,
INC.
 
 
 INDEX
 
 PART
      I
              FINANCIAL
      INFORMATIONITEM
      1.
              CONSOLIDATED
      FINANCIAL STATEMENTS:Consolidated
      Balance Sheets — December 31, 2008 (Unaudited) and March 31,
      2008Consolidated
      Statements of  Operations (Unaudited) — Quarters and nine months
      ended December 31, 2008 and 2007Consolidated
      Statements of Cash Flows (Unaudited) —Nine months ended December 31, 2008
      and 2007Notes
      to Consolidated Financial StatementsITEM
      2.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONSITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM
      4.
              CONTROLS
      AND PROCEDURESPART
      II
              OTHER
      INFORMATIONITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM
      6.
              EXHIBITS
 
 
 
   -
2 -
  
 PART I -
FINANCIAL INFORMATION
 
 ITEM I — CONSOLIDATED FINANCIAL
STATEMENTS
 
 AuraSource,
      Inc.Consolidated
      Balance SheetsDecember
      31,
              
              
              March
      31,2008
              
              
              2008ASSETS
              
              (Unaudited)Current
      assetsCash
      & cash equivalents
              
              $
              98,961
              
              
              $
              8,686Total
      current assets
              
              
              98,961
              
              
              
              8,686Fixed
      assets, net of accumulated depreciation
              
              
              1,888
              
              
              
              -Total
      assets
              
              $
              100,849
              
              
              $
              8,686LIABILITIES
      AND SHAREHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable
              
              $
              17,505
              
              
              $
              -Accrued interest payable, a related party
              
              
              5,252
              
              
              
              24,814Notes payable, related party
              
              
              202,043
              
              
              
              170,000Total
      current liabilities
              
              
              224,800
              
              
              
              194,814Commitments
      and contingenciesShareholders'
      deficitPreferred
      stock, 10,000 shares authorized, no shares issued andoutstanding,
      no rights or privileges designated
              
              
              -
              
              
              
              -Common
      stock, $.001 par value, 150,000,000 shares authorized, 20,300,000 and
      573,500 shares issued and outstanding at December 31, 2008 and March 31,
      2008, respectively.
              
              
              20,000
              
              
              
              574Additional
      paid in capital
              
              
              410,034
              
              
              
              221,960Accumulated
      deficit
              
              
              (553,985
              )
              
              
              (408,662
              )Total
      shareholders' deficit
              
              
              (123,951
              )
              
              
              (186,128
              )Total
      liabilities and shareholders' deficit
              
              $
              100,849
              
              
              $
              8,686The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
   -
3 -
  
 AuraSource,
      Inc.Consolidated
      Statements of OperationsFor
      the Three Month Periods and Nine Month Periods Ended December 31, 2008 and
      2007(Unaudited)For
      the three month periods ended
              
              
              For
      the nine month periods endedDecember
      31, 2008
              
              
              December
      31, 2007
              
              
              December
      31, 2008
              
              
              December
      31, 2007Revenue,
      net
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Cost
      of revenue
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Gross
      profit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Operating
      expenses:General
      & administrative expenses
              
              
              43,161
              
              
              
              2,883
              
              
              
              132,310
              
              
              
              19,663Total
      operating expenses
              
              
              43,161
              
              
              
              2,883
              
              
              
              132,310
              
              
              
              19,663Loss
      from operations
              
              
              (43,161
              )
              
              
              (2,883
              )
              
              
              (132,310
              )
              
              
              (19,663
              )Other
      income (expenses):Other
      income (expense)
              
              
              (4,698
              )
              
              
              (3,600
              )
              
              
              (13,014
              )
              
              
              69,013Net
      Income / (loss) applicable to common stockholders
              
              $
              (47,859
              )
              
              $
              (6,483
              )
              
              $
              (145,324
              )
              
              $
              49,350Basic
      & Dilutive Income / (Loss) per share
              
              $
              (0.00
              )
              
              $
              (0.01
              )
              
              $
              (0.01
              )
              
              $
              0.09Weighted
      average shares outstanding
              
              
              20,300,000
              
              
              
              573,500
              
              
              
              13,724,500
              
              
              
              573,500*
      Weighted average number of shares used to compute basic and diluted loss
      per share is the same since the effect of dilutive securities is
      anti-dilutive.The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
 
   -
4 -
  
 AuraSource,
      Inc.Consolidated
      Statements of Cash FlowsFor
      the Nine Month Periods Ended December 31, 2008 and 2007(Unaudited)2008
              
              
              2007Cash
      flows from operating activities:Net
      income / (loss)
              
              $
              (145,324
              )
              
              $
              49,350Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      expense
              
              
              171
              
              
              
              -Changes
      in operating assets and liabilities:Prepaid
      expenses
              
              
              -
              
              
              
              25,000Accounts
      payable and accrued expenses
              
              
              17,506
              
              
              
              -Interest
      payable
              
              
              (19,562
              )
              
              
              (28,837
              )Non-refundable
      deposits
              
              
              -
              
              
              
              (100,000
              )Net
      cash used in operating activities
              
              
              (147,209
              )
              
              
              (54,487
              )Cash
      flows from investing activities :Capital
      equipment purchases
              
              
              (2,059
              )
              
              
              -Net
      cash used in investing activities
              
              
              (2,059
              )
              
              
              -Cash
      flows from financial activitiesProceeds
      from issuance of common stock
              
              
              200,000
              
              
              
              -Offering
      costs
              
              
              7,500
              
              
              
              -Net
      proceeds from issuance of note
              
              
              202,043
              
              
              
              25,000Repayment
      of debt
              
              
              (170,000
              )
              
              
              (7,500
              )Net
      cash provided by financial activities
              
              
              239,543
              
              
              
              17,500Net
      change in cash and cash equivalents
              
              
              90,275
              
              
              
              (36,997
              )Cash
      and cash equivalents - beginning balance
              
              
              8,686
              
              
              
              58,941Cash
      and cash equivalents - ending balance
              
              $
              98,961
              
              
              $
              21,954Supplemental
      disclosure of cash flows information:Cash
      received/(paid) during the period for:Interest
              
              $
              (32,576
              )
              
              $
              (3,787
              )Income
      taxes
              
              $
              -
              
              
              $
              -The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
 
  -
5 -
  AURASOURCE,
INC.
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
 (UNAUDITED)
 
 NOTE
1.    SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
 
 Current
Operations and Background— AuraSource, Inc., a Nevada corporation
("AuraSource", "Company", “We” or “Our”) seeks suitable exploration licenses for
the mining of precious metals.  In July 2008, we changed our name from
Mobile Nation, Inc. to AuraSource, Inc. after Mongsource USA, LLC (“Mongsource
USA”) acquired a majority interest in us for the purpose of exploring and
developing mineral resources in Mongolia, Guinea, China and other international
markets. Given sufficient capital, we plan to explore and develop mineral
resources in Mongolia, Guinea, China and other international
markets.  Additionally, we seek to acquire coal-water mixture
technology (“CWM”), performing research and development related to CWM and
selling services and products related to and licenses for this
technology.
 
 Mineral
Resources
 
 Through a
series of exploration license acquisition transactions with Mongsource USA,
Mongsource MN LLC (“Mongsource MN”) and Société Guinea Consultant International
(LTD) Sarl. (“GCI), we obtained three gold and other mineral exploration
licenses in Mongolia, one gold exploration license in Guinea, and three
exploration licenses for bauxite in Guinea.
 
 We are in
discussions with potential strategic partners and our goal is to secure
strategic partners in China, Mongolia and Guinea, for mining infrastructure
development, exploration, mining, and industrial mineral processing through
different joint ventures.
  We plan
to develop our business by:
  ·
              Acquiring
      and developing mining licenses for the purposes of exploration,
      development and production of gold and
bauxite.
 
 ·
              Developing
      commercial opportunities in mining and related industrial
      sectors.
 
 ·
              Developing
      mining facilities and other infrastructure on a commercial scale to
      achieve our mining and industrial objectives and generate cash flow
      through the exploitation of third party joint venture
      requirements.
 
 ·
              Forming
      strategic partnerships with global industrial players and Chinese,
      state-owned enterprises to access investment capital and local market
      networks for the development of our business
  projects.
 
 ·
              Achieving
      quotation of our common stock on a stock exchange or over the counter
      market such as the OTC Bulletin Board, and to secure development capital,
      potentially through a PIPE transaction or other strategic
      investment.
 
  -
6 -
  Coal-Water Mixture
Technology
 
 We plan
to develop what we consider a third generation CWM technology which processes
coal and mixes it with water and selected chemicals to make a slurry
mixture.  We believe such slurry mixture will have sufficient fluidity
to move through pipelines, process delivery piping and burner injection nozzles.
The CWM process effectively atomizes the coal into very fine particles. Once the
coal is atomized, it is mixed with water and the lighter coal particles float to
the surface.  A key components of our CWM technology is a biological
treatment of the coal slurry mixture to remove the heavy minerals, such as
sulfur, mercury and AZOTE. We believe that the partial removal of the heavy
mineral sediment from the coal improves energy density, removes particulates
that would become harmful emissions and provides for a cleaner transport and
handling.    Our goal is to demonstrate to power plants and
similar users that we can convert their plants to use CWM-treated coal at a much
lower cost than any alternative now on the market.  Through a joint
venture, we plan to utilize CWM technology in one location in China and in one
location in the United States.
 
 Given
sufficient capital, development and protection of the CWM technology, among
other factors, we plan to utilize the CWM technology as follows:
 
 ·
              license
      its CWM technology to international clients in applicable industries, such
      as coal producers and power plants.
 
 ·
              develop
      strategic partnerships to deliver consulting services with respect to
      design, engineering, procurement and construction for CWM
      applications.
 
 ·
              enter
      into joint ventures with coal producers to work together to supply CWM
      treated coal to power plants.
 
 ·
              process
      coal using CWM and sell such CWM processed coal to applicable industries
      at a marked-up price.
 
 ·
              assist
      clients to convert to CWM rather than oil, gas or other natural resources
      in order to save energy costs.
 
 ·
              centers
      for processing the coal with its CWM technology to supply power plants and
      other customers.
 
 There can be no assurance that we will
be able to carry out our development plans.
 
 Going Concern— The accompanying consolidated financial statements have been prepared
assuming that we will continue as a going concern.  We have suffered
recurring losses from operations since our inception and have an accumulated
deficit of $553,985 at December 31, 2008.  The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classifications of
liabilities that might be necessary should we be unable to continue our
existence.  The recovery of our assets is dependent upon continued
operations of the Company.
 
 In
addition, our recovery is dependent upon future events, the outcome of which is
undetermined.  We intend to continue to attempt to raise additional
capital, but there can be no certainty that such efforts will be
successful.
 
 Basis of
Presentation and Principles of Consolidation — The accompanying
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America.
 
  -
7 -
  The
unaudited consolidated financial statements have been prepared by us pursuant to
the rules and regulations of the Securities and Exchange Commission (“SEC”). The
information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of management,
necessary to fairly present the operating results for the respective periods.
Certain information and footnote disclosures normally present in annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations. These consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and footnotes for the year ended March 31, 2008 included in our Annual Report on
Form 10-KSB. The results of the nine months ended December 31, 2008 are not
necessarily indicative of the results to be expected for the full year ending
March 31, 2009.
 
 Use of Estimates— The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
 
 Cash and Cash
Equivalents— We consider investments with original maturities of
90 days or less to be cash equivalents.
 
 Income Taxes—We record income taxes in accordance with the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income
Taxes.”  The standard requires, among other provisions, an asset and
liability approach to recognize deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and tax basis of assets and
liabilities.  Valuation allowances are provided if, based upon the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
 
 Stock-Based
Compensation—On January 1, 2006, we adopted SFAS No. 123 (revised 2004),
“Share-Based Payment,” (“SFAS 123(R)”) which was issued in December 2004. SFAS
123(R) revised SFAS No. 123, “Accounting for Stock Based Compensation,” and
superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and
its related interpretations. SFAS 123(R) requires recognition of the cost of
employee services received in exchange for an award of equity instruments in the
consolidated financial statements over the period the employee is required to
perform the services in exchange for the award. SFAS 123(R) also requires
measurement of the cost of employee services received in exchange for an award.
SFAS 123(R) also amended SFAS No. 95, “Statement of Cash Flows,” to require the
excess tax benefits be reported as financing cash inflows, rather than as a
reduction of taxes paid, which is included within operating cash flows. We have
chosen to adopt SFAS 123(R) using the modified prospective method. Accordingly,
prior period amounts have not been restated.
 
 SFAS
123(R) provides that income tax effects of share-based payments are recognized
in the consolidated financial statements for those awards that will normally
result in tax deduction under existing law. Under current U.S. federal tax law,
we would receive a compensation expense deduction related to non-qualified stock
options only when those options are exercised and vested shares are received.
Accordingly, the financial statement recognition of compensation cost for
non-qualified stock options creates a deductible temporary difference which
results in a deferred tax asset and a corresponding deferred tax benefit in the
income statement. We do not recognize a tax benefit for compensation expense
related to incentive stock options unless the underlying shares are disposed in
a disqualifying disposition.
 
 Net Income (Loss)
Per Share— We compute net loss per share in accordance with SFAS No.
128, “Earnings per Share,” and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).
Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net loss per
share is computed by dividing the net loss available to common stockholders for
the period by the weighted average number of shares of common stock outstanding
during the period.  Common equivalent shares related to stock options and
warrants have been excluded from the computation of basic and diluted earnings
per share, for the quarters and nine months ended December 31, 2008 and 2007
because their effect is anti-dilutive.
  -
8 -
  
 Concentration of
Credit Risk— Financial instruments that potentially subject us to a
concentration of credit risk consist of cash.  We maintain our cash
with high credit quality financial institutions; at times, such balances with
any one financial institution may exceed FDIC insured limits.
 
 Financial
Instruments— Our financial instruments consist of cash, accounts payable
and notes payable.  The carrying values of cash and accounts payable
are representative of their fair values due to their short-term
maturities.
 
 Recently Issued
Accounting Pronouncements—
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51.  This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Based on current conditions, we do not expect the
adoption of SFAS 160 to have a significant impact on our results of operations
or financial position.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.” (“SFAS 141(R)”)  This statement replaces FASB Statement
No. 141, “Business Combinations.” This statement retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting (which
SFAS 141 called the purchase method) be used for all business combinations and
for an acquirer to be identified for each business combination. This statement
defines the acquirer as the entity that obtains control of one or more
businesses in the business combination and establishes the acquisition date as
the date that the acquirer achieves control. This statement requires an acquirer
to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in the
statement. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We do not expect the
adoption of SFAS 141(R) to have a significant impact on our results of
operations or financial position.
 
 In March,
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for consolidated financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. The new standard also improves transparency about the
location and amounts of derivative instruments in an entity’s consolidated
financial statements; how derivative instruments and related hedged items are
accounted for under Statement 133; and how derivative instruments and related
hedged items affect its financial position, financial performance, and cash
flows.
 
 FASB
Statement No. 161 achieves these improvements by requiring disclosure of the
fair values of derivative instruments and their gains and losses in a tabular
format. It also provides more information about an entity’s liquidity by
requiring disclosure of derivative features that are credit risk–related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important items. Based on current conditions, we do
not expect the adoption of SFAS 161 to have a significant impact on our results
of operations or financial position.
 
  -
9 -
  In April
2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets”, (FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. FSP 142-3 is effective for fiscal years beginning after December 15,
2008. The Company is currently assessing the impact of FSP 142-3 on its
consolidated financial position and results of operations.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of consolidated financial statements. SFAS No. 162 is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles”. The implementation of this
standard will not have a material impact on our consolidated financial position
and results of operations.
 
 In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities” (FSP EITF
03-6-1). FSP EITF 03-6-1 clarified that all outstanding unvested share-based
payment awards that contain rights to nonforfeitable dividends participate in
undistributed earnings with common shareholders. Awards of this nature are
considered participating securities and the two-class method of computing basic
and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for
fiscal years beginning after December 15, 2008. The Company is currently
assessing the impact of FSP EITF 03-6-1 on its consolidated financial position
and results of operations.
 
 In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. The Company is currently assessing the impact of EITF
07-5 on its consolidated financial position and results of
operations.
 
 In June
2008, the FASB ratified EITF Issue No. 08-3, “Accounting for Lessees for
Maintenance Deposits Under Lease Arrangements” (EITF 08-3). EITF 08-3 provides
guidance for accounting for nonrefundable maintenance deposits. It also provides
revenue recognition accounting guidance for the lessor. EITF 08-3 is effective
for fiscal years beginning after December 15, 2008. The Company is currently
assessing the impact of EITF 08-3 on its consolidated financial position and
results of operations.
 
 NOTE
2 – NOTE PAYABLE.
 
 On July
8, 2008, all debts and accrued interest were satisfied with C.W. Gilluly and
Affinity Financial Group, Inc. (“AFG”).
 
 On July
11, 2008, we entered into a Revolving Promissory Note (the “Note”) with
Mongsource USA the majority stockholder of the Company.  Under the
terms of the Note, Mongsouce USA agreed to advance to the Company, from time to
time and at the request of the Company, amounts up to an aggregate of $500,000
until June 30, 2009.  All advances shall be paid on or before June 30,
2009 and interest shall accrue from the date of any advances on any principal
amount withdrawn, and on accrued and unpaid interest thereon, at the rate of ten
percent (10%) per annum, compounded annually. As of December 31, 2008,
Mongsource USA has advanced us $202,043.
 
  -
10 -
  NOTE
3 – CONCENTRATION OF CREDIT RISK
 
 We maintain our cash balances in various
financial institutions that from time to time exceed amounts insured by the
Federal Deposit Insurance Corporation (up to $250,000, per financial institution
as of December 31, 2008). As of December 31, 2008, our deposits did not exceed
insured amounts.  We have not experienced any losses in such accounts
and we believe we are not exposed to any significant credit risk on
cash.
 
 Currently,
we maintain a bank account in Mongolia.  As of December 31, 2008, we
had a balance of $90,180 in this account.  This account is not insured
and we believe is exposed to significant credit risk on cash.
 
 NOTE
4 – RELATED PARTY TRANSACTIONS
  Mongolia
Exploration Licenses
  On
September 6, 2008, we entered into an Exploration Licenses Transfer Agreement
(“Mongolia Licenses Transfer Agreement”), with Mongsource USA, our controlling
stockholder, under which Mongsource USA agreed to transfer to the Company three
mineral exploration licenses in Mongolia (“Mongolia Exploration Licenses”) in
exchange for 30,000,000 shares of the Company’s common stock (“Mongsource
License Shares”). Under the terms of the Mongolia Licenses Transfer Agreement,
if certain conditions are satisfied and we issue the Mongsource License Shares
to Mongsource USA, then  such shares will be held in escrow by the
Company until additional conditions are satisfied, including the issuance of
direct exploration licenses to the Company by the Mongolian governmental
authorities, the satisfactory completion of the Company’s due diligence
investigation, receipt of certain instruments and certificates from governmental
authorities evidencing the Company’s ownership of licenses and exploration
rights and the Company’s receipt of a legal opinion in respect of certain
matters. If any of these and other conditions specified in the Mongolia License
Transfer Agreement is neither satisfied nor waived by the Company, the License
Transfer Agreement will be terminated and the Mongsource License Shares will be
released from escrow and returned to the Company. The agreement also provides
for termination of the Mongolia Licenses Transfer Agreement by either party due
to a breach of the agreement or if the conditions specified therein have not
been either satisfied or waived by the parties by December 31, 2008. As of the
date of this filing, the conditions necessary to transfer the Mongsource License
Shares have not been satisfied.
  Guinea
Exploration Licenses
  On
September 10, 2008 and September 21, 2008, we entered into two Exploration
Licenses Transfer Agreements (“Guinea Licenses Transfer Agreements”), with GCI,
one of our principal stockholders, under which GCI agreed to transfer to the
Company four mineral exploration licenses in Guinea (“Guinea Exploration
Licenses”) in exchange for 30,000,000 shares of the Company’s common stock (“GCI
License Shares”).  Under the terms of the Guinea Licenses Transfer
Agreements, if certain conditions are satisfied and we issue the GCI License
Shares to GCI, then such shares will be held in escrow by the Company until
additional conditions are satisfied, including the issuance of direct
exploration licenses to the Company by the Guinean governmental authorities, the
satisfactory completion of the Company’s due diligence investigation, receipt of
certain instruments and certificates from governmental authorities evidencing
the Company’s ownership of licenses and exploration rights and the Company’s
receipt of a legal opinion in respect of certain matters. If any of these and
other conditions specified in the Guinea Licenses Transfer Agreements is neither
satisfied nor waived by the Company, the Guinea Licenses Transfer Agreements
will be terminated and the GCI License Shares will be released from escrow and
returned to the Company. The agreement also provides for termination of the
Guinea Licenses Transfer Agreements by either party due to a breach of the
agreement or if the conditions specified therein have not been either satisfied
or waived by the parties by December 31, 2008. As of the date of this filing,
the conditions necessary to transfer the GCI License Shares have not been
satisfied.
 
 
  -
11 -
  ITEM
2 .  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 The
information contained in this Form 10-Q is intended to update the information
contained in our Annual Report on Form 10-KSB for the year ended March 31, 2008
and presumes that readers have access to, and will have read, the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
other information contained in such Form 10-KSB.  The following
discussion and analysis also should be read together with our condensed
consolidated financial statements and the notes to the condensed consolidated
financial statements included elsewhere in this Form 10-Q.
 
 The
following discussion contains certain statements that may be deemed
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995.  Such statements appear in a number of
places in this Report, including, without limitation, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”  These
statements are not guarantees of future performance and involve risks,
uncertainties and requirements that are difficult to predict or are beyond our
control.  Forward-looking statements speak only as of the date of this
quarterly report. You should not put undue reliance on any forward-looking
statements.  We strongly encourage investors to carefully read the
factors described in our Annual Report on Form 10-KSB for the year ended March
31, 2008 in the section entitled “Risk Factors” for a description of certain
risks that could, among other things, cause actual results to differ from these
forward-looking statements. We assume no responsibility to update the
forward-looking statements contained in this quarterly report on Form 10-Q. The
following should also be read in conjunction with the unaudited Consolidated
Financial Statements and notes thereto that appear elsewhere in this
report.
 
 Overview
 
 We seek
suitable exploration licenses for the mining of precious metals.  In
July 2008, we changed our name from Mobile Nation, Inc. to AuraSource, Inc.
after Mongsource USA acquired a majority interest in us for the purpose of
exploring and developing mineral resources in Mongolia, Guinea, China and other
international markets. Through a series of exploration license acquisition
transactions with Mongsource USA, Mongsource MN LLC (“Mongsource MN”) and
Société Guinea Consultant International (LTD) Sarl. (“GCI), we obtained three
gold and other mineral exploration licenses in Mongolia, one gold exploration
license in Guinea, and three exploration licenses for bauxite in
Guinea.
 
 We are in
discussions with potential strategic partners and our goal is to secure
strategic partners in China, Mongolia and Guinea, for mining infrastructure
development, exploration, mining, and industrial mineral processing through
different joint ventures. Given sufficient capital, we plan to explore and
develop mineral resources in Mongolia, Guinea, China and other international
markets.  Additionally, we are seeking to acquire coal-water mixture
technology (“CWM”), performing research and development related to CWM and
selling services and products related to and licenses for this
technology.
 
 Mineral
Resources
 
 Through a
series of exploration license acquisition transactions with Mongsource USA,
Mongsource MN LLC (“Mongsource MN”) and Société Guinea Consultant International
(LTD) Sarl. (“GCI), we have contracted to obtained three gold and other mineral
exploration licenses in Mongolia, one gold exploration license in Guinea, and
three exploration licenses for bauxite in Guinea.
 
 We are in
discussions with potential strategic partners and our goal is to secure
strategic partners in China, Mongolia and Guinea, for mining infrastructure
development, exploration, mining, and industrial mineral processing through
different joint ventures.
   -
12 -
  We plan
to develop our business by:
  ·
              Acquiring
      and developing mining licenses for the purposes of exploration,
      development and production of gold and
bauxite.
 
 ·
              Developing
      commercial opportunities in mining and related industrial
      sectors.
 
 ·
              Developing
      mining facilities and other infrastructure on a commercial scale to
      achieve our mining and industrial objectives and generate cash flow
      through the exploitation of third party joint venture
      requirements.
 
 ·
              Forming
      strategic partnerships with global industrial players and Chinese,
      state-owned enterprises to access investment capital and local market
      networks for the development of our business
  projects.
 
 ·
              Achieving
      quotation of our common stock on a stock exchange or over the counter
      market such as the OTC Bulletin Board, and to secure development capital,
      potentially through a PIPE transaction or other strategic
      investment.
 
 Coal-Water Mixture
Technology
 
 We plan
to develop what we consider a third generation CWM technology which processes
coal and mixes it with water and selected chemicals to make a slurry
mixture.  We believe such slurry mixture will have sufficient fluidity
to move through pipelines, process delivery piping and burner injection nozzles.
The CWM process effectively atomizes the coal into very fine particles. Once the
coal is atomized, it is mixed with water and the lighter coal particles float to
the surface.  A key components of our CWM technology is a biological
treatment of the coal slurry mixture to remove the heavy minerals, such as
sulfur, mercury and AZOTE. We believe that the partial removal of the heavy
mineral sediment from the coal improves energy density, removes particulates
that would become harmful emissions and provides for a cleaner transport and
handling.    Our goal is to demonstrate to power plants and
similar users that we can convert their plants to use CWM-treated coal at a much
lower cost than any alternative now on the market.  Through a joint
venture, we plan to utilize CWM technology in one location in China and in one
location in the United States.
 
 Given
sufficient capital, development and protection of the CWM technology, among
other factors, we plan to utilize the CWM technology as follows:
 
 ·
              license
      its CWM technology to international clients in applicable industries, such
      as coal producers and power plants.
 
 ·
              develop
      strategic partnerships to deliver consulting services with respect to
      design, engineering, procurement and construction for CWM
      applications.
 
 ·
              enter
      into joint ventures with coal producers to work together to supply CWM
      treated coal to power plants.
 
 ·
              process
      coal using CWM and sell such CWM processed coal to applicable industries
      at a marked-up price.
 
 ·
              assist
      clients to convert to CWM rather than oil, gas or other natural resources
      in order to save energy costs.
 
 ·
              centers
      for processing the coal with its CWM technology to supply power plants and
      other customers.
 
 There can be no assurance that we will
be able to carry out our development plans.
  -
13 -
  
 Critical Accounting Policies
and Estimates
 
 The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates, judgments and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amount of expenses during the reporting period. On an ongoing
basis, we evaluate our estimates which are based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. The result of these evaluations forms the basis for making
judgments about the carrying values of assets and liabilities and the reported
amount of expenses that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions. The
following accounting policies require significant management judgments and
estimates:
 
 We
account for our business acquisitions under the purchase method of accounting in
accordance with SFAS 141, "Business Combinations." The total cost of
acquisitions is allocated to the underlying net assets, based on their
respective estimated fair values. The excess of the purchase price over the
estimated fair value of the tangible net assets acquired is recorded as
intangibles. Determining the fair value of assets acquired and liabilities
assumed requires management's judgment and often involves the use of significant
estimates and assumptions, including assumptions with respect to future cash
inflows and outflows, discount rates, asset lives, and market multiples, among
other items.
 
 We assess
the potential impairment of long-lived assets and identifiable intangibles under
the guidance of SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." which states that a long-lived asset should be tested for
recoverability whenever events or changes in circumstances indicate that the
carrying amount of the long-lived asset exceeds its fair value. An impairment
loss is recognized only if the carrying amount of the long-lived asset exceeds
its fair value and is not recoverable.
 
 We base
out estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. There can be no assurance that
actual results will not differ from these estimates.
 
 Results
of Operations
 
 For the Quarters Ended
December 31, 2008 and 2007
 
 Selling,
General and Administrative Expenses
 
 Selling,
general and administrative expenses were $43,161 and $2,883 for the quarters
ended December 31, 2008 and 2007, respectively.  The increase in
expense was due to the commencement of operations.
 
 Interest
Income, Interest Expense and Other
 
 Interest
income/(expense) was ($4,698) and $(3,600) for the quarters ended December 31,
2008 and 2007, respectively, an increase of $1,098.  The increase in
expense is principally due to interest from higher debt balances.
 
  -
14 -
  For the Nine Months Ended
December 31, 2008 and 2007
 
 Selling,
General and Administrative Expenses
 
 Selling,
general and administrative expenses were $132,310 and $19,663 for the nine
months ended December 31, 2008 and 2007, respectively.  The increase
in expense was due to the commencement of operations.
 
 Interest
Income, Interest Expense and Other
 
 Interest
income/(expense) was ($13,014) and $69,013 for the nine months ended December
31, 2008 and 2007, respectively, a decrease of $82,027.  The decrease
in income is principally due to recognizing the income of a nonrefundable
deposit in a merger in 2007.
 
 Liquidity and Capital
Resources
 
 Net cash
used in operating activities was $147,209 and $54,487 in the nine months ended
December 31, 2008 and 2007, respectively.  The increase in expense was
due to the commencement of operations.
 
 Net cash
used in investing activities was $2,059 and zero in the nine months ended
December 31, 2008 and 2007, respectively.
 
 Net cash
provided by financing activities was $239,543 and $17,500 in the nine months
ended December 31, 2008 and 2007, respectively.  The difference in
cash provided by financing activities was primarily due to the proceeds from the
issuance of common stock of $200,000 and proceeds from the issuance of debt of
$207,295 offset by the repayment of debt of $170,000.
 
 On May
20, 2008, the Company entered into a Share Purchase Agreement (the “Agreement”)
with Mongsource USA, LLC ("Mongsource USA"), under which Mongsource USA agreed
to purchase, and the Company agreed to sell, an aggregate of 19,426,500 shares
of common stock of AuraSource, Inc for a purchase price of $200,000, or $0.0103
per share. The transaction closed on July 8, 2008.
 
 On July
11, 2008, we entered into the Note with Mongsource USA the majority stockholder
of the Company.  Under the terms of the Note, Mongsource USA agreed to
advance to the Company, from time to time and at the request of the Company,
amounts up to an aggregate of $500,000 until December 31, 2009.  All
advances shall be paid on or before June 30, 2009 and interest shall accrue from
the date of any advances on any principal amount withdrawn, and on accrued and
unpaid interest thereon, at the rate of 10 percent (10%) per annum, compounded
annually.
 
 Inflation and
Seasonality
 
 Inflation
has not been material to us during the past five years. Seasonality has not been
material to us.
 
  -
15 -
  Recent Accounting
Pronouncements
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51.  This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Based on current conditions, we do not expect the
adoption of SFAS 160 to have a significant impact on our results of operations
or financial position.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations” (“SFAS 141(R)”).  This statement retains the
fundamental requirements in SFAS 141 that the acquisition method of
accounting (which SFAS 141 called the purchase method) be used for all business
combinations and for an acquirer to be identified for each business combination.
This statement defines the acquirer as the entity that obtains control of one or
more businesses in the business combination and establishes the acquisition date
as the date that the acquirer achieves control. This statement requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in the
statement. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We do not expect the
adoption of SFAS 141(R) to have a significant impact on our results of
operations or financial position.
 
 In March,
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows.
 FASB
Statement No. 161 achieves these improvements by requiring disclosure of the
fair values of derivative instruments and their gains and losses in a tabular
format. It also provides more information about an entity’s liquidity by
requiring disclosure of derivative features that are credit risk–related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important items. Based on current conditions, we do
not expect the adoption of SFAS 161 to have a significant impact on our results
of operations or financial position.
 
 In April
2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets”, (FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. FSP 142-3 is effective for fiscal years beginning after December 15,
2008. The Company is currently assessing the impact of FSP 142-3 on its
consolidated financial position and results of operations.
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS No. 162 is effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles”. The implementation of this standard will not
have a material impact on our consolidated financial position and results of
operations.
  -
16 -
  In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities” (FSP EITF
03-6-1). FSP EITF 03-6-1 clarified that all outstanding unvested share-based
payment awards that contain rights to nonforfeitable dividends participate in
undistributed earnings with common shareholders. Awards of this nature are
considered participating securities and the two-class method of computing basic
and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for
fiscal years beginning after December 15, 2008. The Company is currently
assessing the impact of FSP EITF 03-6-1 on its consolidated financial position
and results of operations.
 
 In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. The Company is currently assessing the impact of EITF
07-5 on its consolidated financial position and results of
operations.
 
 In June
2008, the FASB ratified EITF Issue No. 08-3, “Accounting for Lessees for
Maintenance Deposits Under Lease Arrangements” (EITF 08-3). EITF 08-3 provides
guidance for accounting for nonrefundable maintenance deposits. It also provides
revenue recognition accounting guidance for the lessor. EITF 08-3 is effective
for fiscal years beginning after December 15, 2008. The Company is currently
assessing the impact of EITF 08-3 on its consolidated financial position and
results of operations.
 
 Off-Balance
Sheet Arrangements-  There are no off-balance sheet
arrangements.
 
   -
17 -
  Risk
Factors
 
 The
following important factors, and the important factors described elsewhere in
this report or in our other filings with the SEC, could affect (and in some
cases have affected) our results and could cause our results to be materially
different from estimates or expectations.  Other risks and
uncertainties may also affect our results or operations
adversely.  The following and these other risks could materially and
adversely affect our business, operations, results or financial
condition.
 
 Risks
Related to the Company
 
 We
have a history of operating losses and expect to have losses until operations
begin.
  We have a limited operating history
upon which investors may rely to evaluate our prospects and have only a
preliminary business plan upon which investors may consider to evaluate our
prospects.  Such prospects must be considered in light of the
problems, expenses, delays and complications associated with a business that
seeks to commence more significant revenue operations.  We have a
history of incurring losses from operations. As of December 31, 2008, we had an
accumulated deficit of $553,985.We expect to continue to
incur operating losses until such time, if ever, as we are able to achieve
sufficient levels of revenue from operations.  We anticipate that our
existing cash and cash equivalents will not be sufficient to fund our business
needs. Our ability to commence revenue operations and achieve profitability will
depend on our obtaining additional capital, entering into satisfactory
agreements with strategic partners, the success of our mining plan, which has
not yet been developed, and finding customers for the gold and other precious
minerals to be mined.  There can be no assurance that we will ever
generate revenues or achieve profitability. Accordingly, the extent of future
losses and the time required to achieve profitability, if ever, cannot be
predicted at this point.
  We
are seeking to acquire exploration licenses for the mining of gold and bauxite
and may not be successful.
  Mineral exploration is an inherently
risky business. Very few exploration companies go on to discover economically
viable mineral deposits or reserves that ultimately result in an operating mine.
In order for us to commence mining operations, we face a number of challenges
which include finding qualified professionals to conduct our exploration
program, obtaining adequate financing to continue our exploration program,
locating a viable ore body, partnering with a senior mining company, obtaining
mining permits, and ultimately selling minerals in order to generate
revenue.
  Prices of commodities can fluctuate
based on world demand and other factors. For example, if the price of a mineral
were to dramatically decline, this could make any ore we have on our mining
claims uneconomical to mine. We and other companies in our business are relying
on a price of ore that will allow us to develop a mine and ultimately generate
revenue by selling minerals.
  Investors
may lose all of their investment in us.
  Investment in us involves a high degree
of risk.  Investors may never recoup all or part of or realized any
return on their investment.  Accordingly, investors may lose all of
their investment and must be prepared to do so.
  We
have no revenue and cannot assure that we will have revenue or profits in the
future.
  We have not and currently are not
generating any revenue while in our development stage. We are incurring
operating losses and cannot assure the investors that we will generate revenue
or be profitable in the future.  Continued losses could cause us to
limit our operations in order to preserve working capital.
  -
18 -
  Substantially
all of our business activities will be overseas and we will be subject to all of
the risks of international operations.
  We expect that substantially all of our
operations will involve the development and commercialization of our mining
rights to the Licensed Areas in Mongolia and Guinea, and the sale of our gold
products to buyers in international markets and the sale of our bauxite to
buyers in China and other international markets. Thus, substantially all of our
business operations will be subject to the risks of international
operations.  Our business, financial condition, and results of
operations could be materially adversely affected by changes or uncertainties in
the political or economic climates, laws, regulations, tariffs, duties, import
quotas, or other trade, intellectual property or tax policies in China, Guinea
and Mongolia and possibly other foreign countries.  We will also be
subject to adverse exchange rate fluctuations among local Chinese, Guinean and
Mongolian currencies and the U.S. dollar since we anticipate that any revenue
generated as well as and costs and expenses for our operations at the Licensed
Areas and in China will be paid in the Chinese RMB, Guinea Franc and Mongolian
Tugrik.
  We
will continue to incur the expenses of complying with public company reporting
requirements.
  We have an obligation to continue to
comply with the applicable reporting requirements of the Securities Exchange Act
of 1934, as amended, even though compliance with such reporting requirements is
economically burdensome.
  We
may experience difficulties in the future in complying with Section 404 of the
Sarbanes-Oxley Act.
  As a public company, we will be
required to evaluate our internal controls under Section 404 of the
Sarbanes-Oxley Act of 2002.  In this regard, we will be required to
comply with the internal control requirements of Section 404 of the
Sarbanes-Oxley Act for each fiscal year ending on or after December 31,
2009.  If we fail to maintain the adequacy of our internal controls,
we could be subject to regulatory scrutiny, civil or criminal penalties and/or
stockholder litigation.  Any inability to provide reliable financial
reports could harm our business.  Section 404 of the Sarbanes-Oxley
Act also requires that our independent registered public accounting firm report
on management’s evaluation of our system of internal
controls.  Furthermore, any failure to implement required new or
improved controls, or difficulties encountered in the implementation of adequate
controls over our financial processes and reporting in the future, could harm
our operating results or cause us to fail to meet our reporting
obligations.
  If we fail to maintain proper and
effective internal controls in future periods, it could adversely affect our
operating results, financial condition and our ability to run our business
effectively and could cause investors to lose confidence in our financial
reporting.
  Going
concern.
  Primarily as a result of our recurring
losses and our lack of liquidity, we received a report from our independent
auditors that includes an explanatory paragraph describing the substantial
uncertainty as to our ability to continue as a going concern.
  We
will need additional financing.
  Our cash requirements may vary
materially from those now planned depending on numerous factors, including
locating a viable ore body, partnering with a senior mining company, obtaining
mining permits, selling minerals in order to generate revenue and competition.
We may not have sufficient funds to institute our business plan.  We
therefore would need to raise additional funds to finance our capital
requirements through new financings to achieve the level of operations we
anticipate.  Such financings could include equity financing, which may
be dilutive to stockholders, or debt financing, which would likely restrict our
ability to borrow from other sources.  In addition, such securities
may contain rights, preferences or privileges senior to those of the rights of
our current stockholders.  We do not have any commitments for
additional financing.  There can be no assurance that additional funds
will be available on terms attractive to us, or at all.  If adequate
funds are not available, we may be required to curtail our to locate and mine a
viable mineral deposit and/or otherwise materially reduce our
operations.  Any inability to raise adequate funds could have a
material adverse effect on our business, results of operation and financial
condition.
  -
19 -
  We
will require additional funding to pursue our business plan.
  We plan, in part, to commence the
initial phases of our exploration plan for the Licensed Areas.  Based
upon our proposed business strategy, we will require additional funding in the
future.  If we cannot obtain capital through financings or otherwise,
our ability to execute our exploration plans and achieve our business objectives
may be greatly limited.  We have had limited operations to date and
the formation and planning of the business have been conducted by our officers
and directors.  Our future cash flows and the availability of
financing will be subject to a number of variables, including changes in the
financial markets, the demand and supply of gold and bauxite and other markets
we may consider, and potential competitive actions by larger and better
capitalized companies.
  Reliance
on and experience of our officers and directors.
  Our officers and directors will be
responsible for the management and control of the Company.  Our
success will, to a large extent, depend on the quality of the management
provided by the officers and directors.  Although our officers and
directors believe that they have the ability to manage the Company, they can
give no assurance that their efforts will result in success.  The
officers and directors have no experience in the exploration, development and
mining of gold and bauxite and have no experience in exploration, development
and mining in foreign countries.  Stockholders have no right or power
to take part in the management of the Company.  Accordingly, no person
should purchase any of the Shares offered hereby unless he is willing to entrust
all aspects of the management of the Company to the officers and
directors.
  We
may have difficulty managing growth in our business.
  Assuming we are successful in
commencing revenue generating activities, because of our small size and the
relatively large scale of operations required for our business to yield revenue,
growth in accordance with our business plan, if achieved, will place a
significant strain on our financial, technical, operational and management
resources. As we expand our activities, there will be additional demands on
these resources.  The failure to continue to upgrade our technical,
administrative, operating and financial control systems or the occurrence of
unexpected expansion difficulties, including issues relating to our rights to
the Licensed Areas in Guinea and Mongolia and recruitment and retention of
experienced contractors, managers, geoscientists and engineers, could have a
material adverse effect on our business, financial condition and results of
operations and our ability to timely execute our business plan.  If we
are unable to implement these actions in a timely manner, our results may be
adversely affected.
  If
we borrow money to expand our business, we will face the risks of
leverage.
  We anticipate that we may in the future
incur debt for financing our growth.  Our ability to borrow funds will
depend upon a number of factors, including the condition of the financial
markets.  The risk of loss in such circumstances is increased because
we would be obligated to meet fixed payment obligations on specified dates
regardless of our revenue.  If we do not meet our debt service
payments when due, we may sustain the loss of our equity investment in any of
our assets securing such debt upon the foreclosure on such debt by a secured
lender.
  Our
stock price is likely to be highly volatile because of several factors,
including a limited public float.
  The market price of our stock is likely
to be highly volatile because there has been a relatively thin trading market
for our stock, which causes trades of small blocks of stock to have a
significant impact on our stock price. You may not be able to resell our common
stock following periods of volatility because of the market’s adverse reaction
to volatility.
  Other
factors that could cause such volatility may include, among other
things:
  ·
              announcements
      concerning our strategy;
  ·
              litigation;
      and
  ·
              general
      market conditions.
  -
20 -
   Our
common stock is considered a “penny stock,” any investment in our shares is
considered to be a high-risk investment and is subject to restrictions on
marketability
  Our common stock is considered a “penny
stock” because it is quoted and traded on the Pink OTC Markets (“Pink Sheets”)
and it trades for less than $5.00 per share.  The Pink Sheets is
generally regarded as a less efficient trading market than the NASDAQ Capital or
Global Markets or the New York Stock Exchange.
 
 The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in “penny
stocks.”  Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system).  The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from those rules,
to deliver a standardized risk disclosure document prepared by the SEC, which
specifies information about penny stocks and the nature and significance of
risks of the penny stock market.  The broker-dealer also must provide
the customer with bid and offer quotations for the penny stock, the compensation
of the broker-dealer and any salesperson in the transaction, and monthly account
statements indicating the market value of each penny stock held in the
customer’s account.  In addition, the penny stock rules require that,
prior to effecting a transaction in a penny stock not otherwise exempt from
those rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction.  These disclosure
requirements may have the effect of reducing the trading activity in the
secondary market for our common stock.
 
 Since our common stock will be subject
to the regulations applicable to penny stocks, the market liquidity for our
common stock could be adversely affected because the regulations on penny stocks
could limit the ability of broker-dealers to sell our common stock and thus your
ability to sell our common stock in the secondary market in the
future.
  We
have additional securities available for issuance, including preferred stock,
which if issued could adversely affect the rights of the holders of our common
stock.
  Our articles of incorporation authorize
the issuance of 150,000,000 shares of common stock and 10,000 shares of
preferred stock. The common stock and preferred stock can be issued by our board
of directors without stockholder approval. Accordingly, our stockholders will be
dependent upon the judgment of our management in connection with the future
issuance and sale of shares of our common and preferred stock, in the event that
buyers can be found therefor. Any future issuances of common stock would further
dilute the percentage ownership of our Company held by the public
stockholders.
  Risks
Related to the Industry and Our Operations
  Competition in the gold and bauxite mining industries are highly
competitive and there is no assurance that we will be successful in acquiring
mining leases.
  The gold and bauxite mining industries
are intensely competitive. Competitive factors in these industries include ease
of use, quality, portability, versatility, reliability, cost and other factors.
We will be competing with numerous individuals and companies, including many
major gold exploration and mining companies, that have substantially greater
technical, financial, and operational resources and staff. Accordingly, there is
a high degree of competition for desirable mining leases, suitable properties
for mining operations, and necessary mining equipment, as well as for access to
funds. We cannot predict if the necessary funds can be raised or that any
projected work will be completed.  There are other competitors that
have operations in Guinea, Mongolia and China and the presence of these
competitors could adversely affect our ability to acquire mining
leases.
   -
21 -
  Further, there can be no assurance that
new companies will not enter our markets in the future.  There can be
no assurance that we will be able to penetrate any of our anticipated
competitors’ shares of the market.  There can be no assurance that we
will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on our
business, operating results and financial condition.
  The
profitability of our operations, and the cash flows generated by these
operations, are significantly affected by the fluctuations in the price of input
production factors, many of which are linked to the price of oil and
steel.
  Fuel, power
and consumables, including diesel, heavy fuel oil, chemicalreagents,
explosives and tires, which are used in mining operations, form arelatively
large part of the operating costs of any mining company. The cost ofthese
consumables is linked, to a greater or lesser extent, to the price of oil.Furthermore,
the cost of steel, which is used in the manufacture of most forms of fixed and
mobile mining equipment, is also a relatively large contributor to the operating
costs and capital expenditure of a mining company. Fluctuations in the price of
oil and steel have a significant impact upon operating cost and capital
expenditure estimates and, in the absence of other economic fluctuations, could
result in significant changes in the total expenditure estimates for new mining
projects or render certain projects non-viable. We have no influence over the
price of fuel, chemical reagents, explosives, steel and other commodities used
in our mining activities. Our operations and development projects could be
adversely affected by shortages of, as well as the lead times to deliver,
strategic spares, critical consumables and heavy mining equipment.
  Due
to the significant increase in the world’s demand for commodities without a
concomitant increase in the capacity for production, shortages and increased
lead times in delivery of strategic spares, critical consumables, heavy mining
and certain processing equipment could have an adverse impact upon our results
of operations and our financial condition.
  The global
mining industry is experiencing an increase in production capacity both in terms
of expansions at existing, as well as the development of new, production
facilities.  This increase in expansion capacity has taken place, in
certain instances, without a concomitant increase in the capacity for production
of certain strategic spares, critical consumables and mining and processing
equipment used to operate and construct mining operations, resulting in
shortages of and an increase in the lead times to deliver these
items.  In particular, we could, like other gold and bauxite mining
companies, experience shortages in critical consumables like tires for mobile
mining equipment, as well as certain critical spares for both mining equipment
and processing plants. In addition, we could experience an increase in delivery
times for these and other items. These shortages could also result in
unanticipated increases in the prices of certain strategic spares, critical
consumables and mining and processing equipment, among other items. Shortages of
critical spares, consumables and equipment result in delays and production
shortfalls. Increases in prices result in an increase in both operating costs
and the capital expenditure to develop mining operations. While suppliers and
equipment manufacturers may increase capacity to meet the increased demand and
therefore alleviate both shortages of, and time to deliver, strategic spares,
critical consumables and mining and processing equipment, we have limited
influence over manufacturers and suppliers. Consequently, shortages and
increased lead times in delivery of strategic spares, critical consumables,
heavy mining and certain processing equipment could have an adverse impact upon
our results of operations and our financial condition.
  -
22 -
   Gold
companies face many risks related to their operations (including their
exploration and development activities) that may adversely affect their cash
flows and overall profitability.
  Uncertainty
and cost of mineral exploration and acquisitions and exploration activities are
speculative and are often unproductive. These activities also often require
substantial expenditure to:
  ·
              establish
      the presence, and quantify the extent and grades (metal content), of
      mineralized material through exploration
  drilling;
  ·
              determine
      appropriate metallurgical recovery processes to extract gold from the
      ore;
  ·
              estimate
      ore reserves;
  ·
              undertake
      feasibility studies and estimate the technical and economic
      viability  of the project;
and
  ·
              construct,
      renovate or expand mining and processing facilities or contract with a
      third party to provide such
facilities.
  The failure
of our exploration activities resulting in productive mines will adversely
effect our cash flows and overall profitability.
  Actual
cash operating costs, production and economic returns may differ significantly
from those anticipated by estimates.
  Operating
costs and capital expenditure are determined particularly by the costs of the
commodity inputs, including the cost of fuel, chemical reagents, explosives,
tires and steel that are consumed in mining activities. There are a number of
uncertainties inherent in the development and construction of an extension to an
existing mine, or in the development and construction of any new mine. In
addition to those discussed above these uncertainties include:
  ·
              the
      timing and cost, which can be considerable, of the construction of mining
      and processing facilities;
  ·
              the
      availability and cost of skilled labor, power, water and transportation
      facilities;
  ·
              the
      availability and cost of appropriate processing
    arrangements;
  ·
              the
      need to obtain necessary environmental and other governmental permits and
      the timing of those permits; and
  ·
              the
      availability of funds to finance construction and development
      activities.
  The
costs, timing and complexities of mine development and construction can increase
because of the remote location of many mining properties and could result in
unsuccessful development activities.
 
 New mining properties are generally
located in remote locations.  We may incur additional costs related to
the transportation of the equipment, materials and personnel necessary to
conduct our mining operations at such remote locations.  New mining
operations could experience unexpected problems and delays during development,
construction and mine start-up. In addition, delays in the commencement of
mineral production could occur.  Finally, operating cost and capital
expenditure estimates could fluctuate considerably as a result of fluctuations
in the prices of commodities consumed in the construction and operation of
mining projects. Accordingly, if we are unable to appropriately estimate the
costs of operating in remote locations and/or manage our operations in such
remote locations, our future development activities may not be
successful.
  -
23 -
   Many
of our competitors have greater resources.
  Many of our existing or potential
competitors may have substantially greater financial, technical and marketing
resources, larger customer or potential customer bases, name recognition and
more established key relationships than we do.  This may enable them
to develop and expand their mining and processing infrastructure more quickly,
and achieve greater scale and cost efficiencies; adapt more quickly to new or
emerging production techniques and technologies and changing customer needs;
take advantage of acquisitions and other opportunities more readily; establish
operations in new markets more rapidly; devote greater resources to the
marketing and sale of their products and services; and adopt more aggressive
pricing policies and provide clients with additional benefits at lower overall
costs in order to gain market share or in anticipation of future improvements in
delivery costs.  If our competitive advantages are not compelling or
sustainable and we are not able to effectively compete with our competitors,
then we may not be able to generate, sustain or increase cash flow.
  There
will be risks related to dealing with governmental entities in our
operations.
  The principal markets for gold are the
precious metals and commodityindustries and the
principal market for bauxite is the aluminum industry.  These
industries are still under considerable influence from the national and local
governmental entities of Guinea, Mongolia and China. The sale of products may be
subject to considerations such as local development, safety and environmental
concerns outside considerations of economic and competitive
factors.  These considerations could result in a significant reduction
in our anticipated revenues or increase in costs.  We cannot assure
investors that such governmental agencies will make decisions that rely on
economic and competitive factors and that our markets will develop as
anticipated.  These decisions may create delays and relatively long
sales cycles due to their internal decision making policies and
procedures.
  We
face numerous uncertainties in estimating our economically recoverable gold,
bauxite and precious mineral reserves, and inaccuracies in our estimates could
result in lower than expected revenues, higher than expected costs or decreased
profitability.
  In the event we acquire the three
mineral exploration licenses in Mongolia from Mongsource and Mongsource MN and
four mineral exploration licenses in Guinea from GCI, we will have access to
three areas in Mongolia and four areas in Guinea (referred to herein as the
“Licensed Areas”) that contain commercial amounts of gold and bauxite and
possibly other metals, such as copper.  We can, however, offer no
assurances as to the amount of gold and bauxite, or any other metals, we will
ultimately extract, if any.  We have not yet done a full-scale
geological assessment of the gold and bauxite reserves at this time, nor have we
developed a definitive mining plan.  Our estimates, as well as the
quality of the content of the gold and bauxite at the Licensed Areas, will be
revised and updated periodically to reflect the resolution of uncertainties and
assumptions, the production of gold and bauxite from the Licensed Areas and new
drilling or other data received.  There are numerous uncertainties
inherent in estimating quantities and qualities of and costs to mine recoverable
gold and bauxite reserves, including many factors beyond our
control.  Estimates of economically recoverable gold and bauxite
reserves and net cash flows necessarily depend upon a number of variable factors
and assumptions, all of which may vary considerably from actual results such
as:
  ·
              geological
      and mining conditions which may not be fully identified by available
      exploration data or which may differ from experience in current
      operations;
   ·
              production
      from the Licensed Areas compared with production from other similar
      producing areas;
   ·
              the
      assumed effects of regulation and taxes by governmental
      agencies;
   ·
              lack
      of control over our local operations in Guinea and Mongolia and lack of
      control over any joint venture partner we may have;
  and
   ·
              assumptions
      concerning gold and bauxite prices, operating costs, mining technology
      improvements, taxes, development costs and reclamation
    costs.
   -
24 -
  For these reasons, estimates of the
economically recoverable quantities and qualities of gold and bauxite
attributable to the Licensed Areas, classifications of reserves based on risk of
recovery and estimates of net cash flows expected from the Licensed Areas may
vary substantially. Actual gold and bauxite tonnage recovered from the Licensed
Areas and revenues and expenditures with respect thereto may vary materially
from our actual results from operations.  As a result, the estimates
set forth in this Memorandum may differ materially from our actual reserves.
Inaccuracies in our estimates could result in lower than expected revenues,
higher than expected costs, or decreased profitability.
  Our
financial condition could be adversely affected because we lack control over the
management and operation of our local operations or joint ventures in Guinea and
Mongolia..
  We
are dependent on the ability of our local operations in Guinea, Mongolia and
China to operate and manage our operations at the Licensed Areas. As a result,
we are unable to directly implement strategic business decisions for the
operation and management of the Licensed Areas, including decisions with respect
to the hiring labor and other daily business decisions. To the extent our we are
unable to implement our strategic business decisions at our local operations in
the Licensed Areas, our financial condition and results of operation will be
adversely effected.
  We
face risks inherent to mining which could increase the cost of operating our
business.
  Our mining operations will be subject
to conditions beyond our control that can impact the safety of the workers at
the Licensed Areas, delay gold and bauxite deliveries or increase the cost of
mining for varying lengths of time.  These conditions include fires
and explosions from methane gas or dust, accidental mine water discharges,
weather and natural disasters, unexpected maintenance problems, key equipment
failures, variations in gold and bauxite seam thickness, variations in the
amount of rock and soil overlying the gold and bauxite deposits, variations in
rock and other natural materials and variations in geologic
conditions.  Any of these factors could increase the cost of operating
our business, which would lower or eliminate our margins.
  Our
ability to commercialize our rights to the Licensed Areas is dependent on many
factors, including the ability to receive various government
permits.
  In order to develop our gold and
bauxite deposits, we must receive and continue to receive various governmental
permits.  We must apply for renewal of our licenses every three years.
For the license renewals to be granted we must complete certain work on the
Licensed Areas every year. We cannot predict whether we will continue to receive
the permits necessary for us to continue our operations.
  Defects
in title or loss of any leasehold or licensed interests in the Licensed Areas
could adversely affect our ability to mine the property.
  We currently plan to conduct
substantially all of our mining operations at the Licensed Areas.  A
title defect or the loss of any lease or license granted to us in connection
with our operations at the Licensed Areas could adversely affect our ability to
mine at such location.  Title to and the area of resource concessions
may be disputed.  Currently, title to the Licensed Areas in Guinea has
not been verified and there is no guarantee of title to these
properties.  We have verified title to the Licensed Areas in
Mongolia.We are
relying on title information and/or representations and warranties provided by
Mongsource and GCI.  We intend to obtain from the Guinean government
certification of title with respect to the Licensed Areas in Guinea Our right to mine
reserves at the Licensed Areas may be adversely affected if defects in title or
boundaries exist or if a lease, license or concession expires.  The
Licensed Areas may be subject to prior unregistered agreements or transfers and
title may be affected by undetected defects.  Title may be based upon
interpretation of the laws of Guinea and Mongolia, which laws may be ambiguous,
inconsistently applied and subject to reinterpretation or change.  Any
title challenge could delay the exploration and development of the Licensed
Areas and could ultimately result in the loss of some or all of our interest in
the Licensed Areas and could increase our costs.  The interests we
have in the Licensed Areas are subject to any number of Guinean and Mongolian
government approvals, licenses and permits.  Such approvals, licenses
and permits are, as a practical matter, subject to the discretion of the
applicable governments or governmental officials.  No assurance can be
given that we will be successful in maintaining any or all of the various
approvals, licenses and permits in full force and effect without modification or
revocation.
  -
25 -
  In addition, if we mine on property
that we do not own or lease, we could incur liability for such
mining.  We have not surveyed the boundaries of the Licensed Areas and
consequently the boundaries of the property may be disputed.  We
expect that boundaries of the Licensed Areas property will be designated on a
map issued by the Guinean and Mongolian governments in the
future.  The documents related to the Licensed Areas that we have
entered into, or may enter into in the future, may have minimum production
requirements or require us to commence mining in a specified term to retain our
rights.  Failure to meet those requirements could result in certain
financial losses and could result in a loss of the rights
themselves.
  A
substantial or extended decline in gold and bauxite prices could reduce our
revenues and the value of any mineral reserves that are established at the
Licensed Areas.
  The prices we plan to charge for gold
and bauxite will depend upon factors beyond our control, including:
 
 ·
              the
      supply of, and demand for, gold and
bauxite;
 
 ·
              the
      proximity to, capacity of, and cost of transportation
      facilities;
 
 ·
              governmental
      regulations and taxes; and
 
 ·
              regulatory,
      administrative and court decisions.
 
 Our results of operations will be
largely dependent upon the prices we charge for our gold and bauxite as well as
our ability to improve productivity and control costs.  Decreased
demand would cause prices to decline and require us to increase productivity and
lower costs in order to maintain margins.  If we are not able to
maintain our margins, our operating results could be adversely
affected.  Therefore, price declines may adversely affect operating
results for future periods and our ability to generate cash flows necessary to
improve productivity, invest in operations and continue as a going
concern.
  Due
to variability in gold and bauxite and in our early estimates in the cost of
producing such gold and bauxite, as well as certain provisions in contracts into
which we may enter, we may be unable to sell gold and bauxite at a
profit.
  We may sell gold and bauxite we extract
for a specified tonnage amount and at a negotiated price pursuant to short-term
contracts and contracts of twelve months or greater.  Price
adjustment, “price reopener” and other similar provisions in long-term supply
agreements may reduce the protection from short-term gold and bauxite price
volatility traditionally provided by such contracts.  Contracts we may
enter into in the future may contain provisions allowing the purchase price to
be renegotiated or adjusted based on market prices at the time at periodic
intervals.  Any adjustment or renegotiation leading to a significantly
lower contract price would result in decreased revenues and lower our gross
margins.  Gold and bauxite supply agreements also typically contain
force majeure provisions allowing temporary suspension of performance by us or
our customers during the duration of specified events beyond the control of the
affected party.  Our gold and bauxite supply agreements may contain
provisions requiring us to deliver gold and bauxite meeting quality thresholds
for certain characteristics.  Failure to meet these specifications
could result in economic penalties, including price adjustments, the rejection
of deliveries or, in the extreme, termination of the
contracts.  Consequently, due to the risks mentioned above with
respect to long-term supply agreements, we may not achieve the revenue or profit
we expect to achieve from these sales commitments.  In addition, we
may not be able to successfully convert these sales commitments into long-term
supply agreements.
  
   -
26 -
   We
will likely depend heavily on a small number of large customers, the loss of any
of which would adversely affect our operating results.
  Other than extracting samples from the
sites in Mongolia, at present, we have not begun any activities at the Licensed
Areas.  Given our current business plan, and without the benefit of
having a specific mining plan in place, we expect that our gold and bauxite
revenues from sales will be to a small number of large customers.  If
any of these customers were to significantly reduce their purchases of gold and
bauxite from us, or if we were unable to sell gold and bauxite to them on terms
favorable to us, our financial condition and results of operations could suffer
materially.
  We
are not diversified, we will concentrate on one industry and four mining
locations.
  Our business strategy will concentrate
in exploration, development, production and extraction of gold and bauxite from
the Licensed Areas in Guinea and Mongolia.  There is an inherent risk
in not having a more diverse base of properties in exploration, development,
production, extraction and processing because we will not have alternate sources
of revenue if we are not successful with our currently anticipated
activities.  As we will invest substantially all of our assets in the
gold and bauxite markets and in the Licensed Areas, specifically, we may be more
affected by any single adverse economic, political or regulatory event than a
more diversified entity.  Our failure in the exploration, development,
production and extraction of gold and bauxite in Guinea and Mongolia at the
Licensed Areas and the processing thereof would have a material adverse affect
on our business.
  There
is no assurance that we will find purchasers of our product at profitable
prices.
  If we are unable to achieve supply
contracts, or are unable to find buyers willing to purchase our gold and bauxite
at profitable prices, our revenues and operating profits could
suffer.
  A
shortage of skilled labor in the mining industry could pose a risk to achieving
optimal labor productivity and competitive costs, which could adversely affect
our profitability.
  Efficient gold and bauxite mining using
modern techniques and equipment requires skilled laborers, preferably with at
least a year of experience and proficiency in multiple mining
tasks.  If we are faced with a shortage of experienced labor to
operate our facilities at the Licensed Areas there could be an adverse impact on
our labor productivity and costs and our ability to expand production and
therefore have a material adverse effect on our business.  In
addition, we anticipate that our gold mining and processing will be through
contracting with a major Chinese gold and precious metal company and that our
bauxite mining and processing will be through contracting with a major Chinese
aluminum company or other third party with experience and access to equipment,
labor and markets.  If our contract miners or other workers are unable
to perform their duties as expected, we may experience disruptions in our
production.  If difficulties with our contract miners and other
workers arise in the future, there could be an adverse effect on our
productivity and costs and our ability to expand production and therefore have a
material adverse effect on our business.
  -
27 -
   Our
mining operations will be extensively regulated, which will impose significant
costs on us, and future regulations and developments could increase those costs
or limit our ability to produce gold and bauxite.
  We expect that Guinean and Mongolian
authorities, at all levels, likely will exercise some regulatory control over
our operations and in the gold and bauxite mining industry, generally, with
respect to matters such as employee health and safety, permitting and licensing
requirements, air quality standards, water pollution, plant and wildlife
protection, reclamation and restoration of mining properties after mining is
completed, the discharge of materials into the environment, surface subsidence
from underground mining and the effects that mining has on groundwater quality
and availability.  It is our understanding that numerous governmental
permits and approvals are required for mining operations.  We may be
required to prepare and present to Guinean and Mongolian authorities data
pertaining to the effect or impact that any proposed exploration for or
production of gold and bauxite may have upon the environment.  The
costs, liabilities and requirements associated with these regulations may be
costly and time consuming and may delay commencement or continuation of
exploration or production.  The possibility exists that new
legislation and/or regulations and orders related to the environment or employee
health and safety may be adopted and may materially adversely affect our
anticipated mining operations and/or our cost structure.  New
legislation or administrative regulations (or judicial interpretations of
existing laws and regulations), including proposals related to the protection of
the environment that would further regulate and tax the gold and bauxite
industries, may also require us or our customers to change operations
significantly or incur increased costs.  Our gold and bauxite supply
agreements may contain provisions that allow a purchaser to terminate its
contract if legislation is passed that either restricts the use or type of gold
and bauxite permissible at the purchaser’s plant or results in specified
increases in the cost of gold and bauxite or their use.  These factors
and legislation, if enacted, could have a material adverse effect on our
financial condition and results of operations.
 
 Laws to which we will be subject will
likely impose liability relating to contamination by hazardous
substances.  Such liability may involve the costs of investigating or
remediating contamination and damages to natural resources, as well as claims
seeking to recover for property damage or personal injury caused by hazardous
substances.  Such liability may arise from conditions at currently
operated properties and at properties to which hazardous substances have been
sent for treatment, disposal, or other handling.  Our mining and
processing operations will involve some use of hazardous materials. Future
developments, such as new information concerning areas known to be or suspected
of being contaminated for which we may be responsible, the discovery of new
contamination for which we may be responsible, or the inability to share costs
with other parties that may be responsible for the contamination, could have a
material adverse effect on our financial condition or results of
operations.
  A
decrease in the availability or increase in costs of key supplies, capital
equipment or commodities such as diesel fuel, steel, explosives and tires could
decrease our anticipated profitability.
  Our mining operations will require a
reliable supply of replacement parts, explosives, fuel, tires, steel related
products (including roof control) and lubricants.  Although we plan to
enter into joint ventures and outsource our mining operations to one or more
large, experienced mining firms that can provide capital for mining and
processing equipment as well as do the mining and processing to prepare for
shipment, if the cost of
any of these inputs increased significantly, or if a source for these supplies
or mining equipment were unavailable to meet our replacement demands or the
demands of our contractor, our profitability could be reduced from our current
expectations.
  -
28 -
   Our
market is characterized by new gold and bauxite supply products and quality and
price sensitivity.
  The market for our product is
characterized by the need for additional gold and bauxite supply, as well as
quality and price sensitivity.  For example, the price of gold has
fluctuated between $736.50 per ounce on October 8, 2007 to $913.00 per ounce on
October 8, 2008. See http://www.kitco.com/gold.londonfix.html. The price of
international third party bauxite generally fluctuates between $20 and $30 per
ton. Seewww.capealumina.com.au/market.htm.  Our
success will depend in large part on our ability to produce and deliver quality
gold and bauxite efficiently, enhance our mining and processing techniques and
technologies and produce gold and bauxite products of high and consistent
quality in sufficient quantities at a competitive price.  We intend to
subcontract a significant portion of our operation to or enter into joint
ventures with more experienced operators with experience in the development of
techniques and technology for the production of gold and
bauxite.  There can be no assurance that our contractors will
successfully complete the development of these techniques and technologies and
resulting product in a timely fashion or that our gold and bauxite will satisfy
the needs of the market.  There can also be no assurance that other
suppliers of gold and bauxite and their techniques and technologies developed
will not adversely affect our competitive position or render our techniques and
technologies non-competitive or obsolete.
  The
profitability of our operations, and the cash flows generated by these
operations, are significantly affected by changes in the market price for
gold.
  The market price for gold can
fluctuate widely. These fluctuations are caused by numerous factors beyond our
control, including:
 
 ·
              speculative
      positions taken by investors or traders in
gold;
  ·
              changes
      in the demand for gold as an
investment;
  ·
              changes
      in the demand for gold used in jewelry and for other industrial
      uses;
  ·
              changes
      in the supply of gold from production, disinvestment, scrap and
      hedging;
  ·
              financial
      market expectations regarding the rate of
  inflation;
  ·
              the
      strength of the dollar (the currency in which the gold price trades
      internationally) relative to other
currencies;
  ·
              changes
      in interest rates;
  ·
              actual
      or expected gold sales by central banks and the International Monetary
      Fund;
  ·
              gold
      hedging and de-hedging by gold
producers;
  ·
              global
      or regional political or economic
events;
  ·
              costs
      of removal and processing; and
  ·
              costs
      of gold production in major gold-producing nations in which we have
      operations, such as Guinea, Mongolia and
China.
   -
29 -
   The
price of gold can be volatile.
  Gold prices historically have
fluctuated widely and are affected by numerous factors outside of our control,
including industrial and retail demand, central bank lending, sales and
purchases of gold, forward sales of gold by producers and speculators, levels of
gold production, short-term changes in supply and demand because of speculative
hedging activities, confidence in the global monetary system, expectations of
the future rate of inflation, the strength of the US dollar (the currency in
which the price of gold is generally quoted), interest rates, and global or
regional political or economic events. The potential profitability of our
operations is directly related to the market price of gold. A decline in the
market price of gold would materially and adversely affect our financial
position. A decline in the market price of gold may also require us to
write-down any mineral reserves that we might book, which would have a material
and adverse effect on our earnings and financial position. Further, if the
market price of gold declines, we may experience liquidity difficulties if and
when we attempt to sell any gold we discover. This may reduce our ability to
invest in exploration and development, which would materially and adversely
affect future production, earnings, and our financial position.
  The
price of gold is often subject to sharp, short-term changes resulting from
speculative activities.
  While the overall supply of and
demand for gold can affect its market price, because of the considerable size of
above-ground stocks of the metal in comparison to other commodities, these
factors typically do not affect the gold price in the same manner or degree that
the supply of and demand for other commodities tends to affect their market
price
  If
the gold and bauxite industries experience overcapacity in the future, our
profitability could be impaired.
  An increase in future gold and bauxite
prices and imports to places such as China could encourage the development of
expanded capacity by new or existing gold and bauxite producers.  Any
overcapacity could reduce gold and bauxite prices in the future, resulting in a
negative impact on our profitability.
  We
are and will be dependent on key personnel and third parties in other
countries.
  Our success will be largely dependent
upon the efforts of our officers and directors, as well as our joint venture
partners and other third parties in other countries.  The loss of the
services of these individuals could have a material adverse effect on our
business and prospects.  There can be no assurance that we will be
able to retain the services of such individuals in the future.  We
will also be dependent to a substantial degree on our technical and development
staff, most of whom will be located in other countries such as
China.  Our success will be dependent upon our ability to hire and
retain additional qualified technical, research, management, marketing and
financial personnel.  We will compete with other companies with
greater financial and other resources for such personnel.  To date we
do not have any employees and there can be no assurance that we will be able to
acquire qualified personnel required as and when needed.
  We
have limited marketing capability.
  We have limited marketing capabilities
and resources.  In order to achieve market penetration we will have to
undertake significant efforts and expenditures to create awareness of, and
demand for, our gold product.  Our ability to penetrate the market and
build our customer base will be substantially dependent on our marketing
efforts, including our ability to establish strategic marketing arrangements or
joint ventures with other companies, such as China Minmetals and China
Aluminum.  No assurance can be given that we will be able to enter
into any such arrangements or joint ventures or if entered into that they will
be successful.  Our failure to successfully develop our marketing
capabilities, both internally and through third-party alliances, would have a
material adverse effect on our business, operating results and financial
condition.  Further, there can be no assurance that, if developed,
such marketing capabilities will lead to sales of our product.
   -
30 -
   We
will be heavily dependent on third party operators for mining and
transportation.
  We expect to contract out substantially
all of our mining, processing and transportation activities to a limited number
of companies.  We currently do not have any contracts with these
parties, although we expect that entering into such contracts will be a
necessary part of our operations.  Our reliance upon outside companies
will involve a number of risks, including limited control over the availability
of amounts, delivery schedules, pricing and product quality.  We may
experience delays, additional expenses and lost sales if we are required to
locate and qualify alternative operating companies.
  We
will not have the ability to run our operations directly in Guinea and
Mongolia.
  We expect to either hire employees to
conduct our operations in Guinea and Mongolia or contract such functions to
joint venture partners or other third parties.  We do not have the
ability to run our operations directly and will therefore have to rely on
employees, joint venture partners or other third party contractors located in
foreign countries to conduct our daily operations in Guinea and
Mongolia.
  We
are uncertain of our ability to protect any cost advantage that we may
develop.
  Our ability to become and remain a low
cost, high quality gold and bauxite producer will depend in part on our
relationship with third party contractors, cost control and currency rate
fluctuations.  We believe that we have a highly desirable gold and
bauxite resources. Our success will depend on cost control, maintaining a level
of quality control, safety factors, infrastructure availability and the
completion of roads and rail for shipping.
  Fluctuations
in exchange rates could adversely affect our business.
  Our sales will generally be denominated
inUnited States
dollars with costs and expenses in the Chinese currency, the RMB, Mongolian
currency, the Tugrik, and in the Guinean currency, the Guinea
Franc.  Fluctuations in exchange rates, particularly among the RMB,
the Tugrik and the Guinea Franc, could result in exchange losses and operating
losses.
  Because
our possible joint ventures and contract partners may have more influence with
various levels of government, we may not be able to adequately protect our
property interests in Mongolia, Guinea and China.
  We may enter into joint venture
agreements and/or contracts with third parties in connection with, among other
things, the management and operation of our gold and bauxite mining business at
the Licensed Areas.  Although we expect that these connections will
benefit us in some respects, there may be a substantial inequality with respect
to the influence of the respective third parties with the various levels of
Mongolian, Guinean and Chinese government. The governments hold a substantial
degree of subjective control over the application and enforcement of laws and
the conduct of business.  This inequality would become particularly
detrimental if a business dispute arose between us and any of these third
parties.  We will endeavor to maintain positive relations with both
our partners and local governments, but there can be no guarantee that these
measures will be sufficient to protect our interests in Mongolia, Guinea or
China.  See “Risks Related to Doing Business in China” and “Risks
Related to Doing Business in Guinea and Mongolia.”
  Compliance
with environmental regulations might be expensive and noncompliance with these
regulations may result in adverse publicity and potential significant monetary
damages and fines.
  Gold and bauxite mining generates a
disruption to the natural topography of the area and metal cleaning creates
large volumes of contaminated water that must be cleaned or disposed
of.  We plan to operate within all applicable environmental laws and
regulations and to restore the area to approximately its original
terrain.  We also plan to contain and treat all water discharge for
reuse or conservation.  If we fail to
comply with present or future environmental regulations we may be required to
pay substantial fines, suspend production or cease operations. Any failure by us
to control the use of, or restrict adequately the discharge of, hazardous
substances could subject us to potentially significant monetary damages and
fines or suspensions in our business operation.
   -
31 -
   There
are economic and general risks relating to business.
  The success of our activities is
subject to risks inherent in business generally, including demand for products
and services; general economic conditions; changes in taxes and tax laws; and
changes in governmental regulations and policies.
  Control
by key stockholders.
  Our largest stockholder, Mongsource,
represents approximately 98% of the voting power of our outstanding capital
stock if 20,200,000.  Mongsource is a subsidiary of Mongsource BVI,
which, in turn, is controlled by Mongolian Natural Resources Investment
Group.  Our stockholders will have only limited rights to participate
in our management.
 
 Risks
Related to Doing Business in China
  Most,
if not all, of our sales may be in China.
  China is a developing country and has
only a limited history of trade practices as a nation.  Because we
will likely direct a substantial amount of our sales efforts to purchasers in
China, we will be subject to the laws, rules, regulations, and political
authority of the government of the People’s Republic of China
(“PRC”).  We may encounter material problems while doing business in
China, such as in interactions with the Chinese government and the uncertainty
of foreign legal precedent pertaining to coke processing and the sale of gold
and bauxite in China.  Risks inherent in international operations also
include the following:
  ·
              local
      currency instability;
  ·
              inflation;
  ·
              the
      risk of realizing economic currency exchange losses when transactions are
      completed in the Chinese RMB, Mongolian Tugrik, Guinea Franc and other
      currencies;
  ·
              the
      ability to repatriate earnings under existing exchange control laws;
      and
  ·
              political
      unrest.
  ·Changes in import and export laws and tariffs can also materially impact
international operations.  In addition, international operations
involve political, as well as economic risks, including:
  ·
              nationalization;
  ·
              expropriation;
  ·
              contract
      renegotiations; and
  ·
              changes
      in laws resulting from governmental
changes.
  In addition, we may be subject to rules
and regulations of the PRC or the jurisdiction of other governmental agencies in
the PRC that may adversely affect our ability to perform under, or our rights
and obligations in, our contracts with Chinese companies or government
entities.  In the event of a dispute, we will likely be subject to the
exclusive jurisdiction of foreign courts.  We may also be hindered or
prevented from enforcing our rights with respect to a governmental
instrumentality because of the doctrine of sovereign immunity.
   -
32 -
   Adverse
changes in political and economic policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could
reduce the demand for our products and materially and adversely affect our
competitive position.
  Some or all of our sales may be made in
China. Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. The Chinese economy differs from the economies of most
developed countries in many respects, including:
  ·
              the
      amount of government involvement;
  ·
              the
      level of development;
  ·
              the
      growth rate;
  ·
              the
      control of foreign exchange; and
  ·
              the
      allocation of resources.
  While it is our understanding that the
economy in China has grown significantly in the past 20 years, the growth has
been uneven, both geographically and among various economic sectors. The
government of the People’s Republic of China (“PRC”) has implemented various
measures to encourage or control economic growth and guide the allocation of
resources.  Some of these measures benefit the overall Chinese
economy, but may also have a negative effect on us.  For example, our
financial condition and results of operations may be adversely affected by
government control over capital investments or changes in tax regulations that
are applicable to us.
  The Chinese economy has been
transitioning from a planned economy to a more market-oriented economy. Although
in recent years the PRC government has implemented measures emphasizing the
utilization of market forces for economic reform, the reduction of state
ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of the productive
assets in China is still owned by the PRC government. The continued control of
these assets and other aspects of the national economy by the PRC government
could materially and adversely affect our business.  The PRC
government also exercises significant control over Chinese economic growth
through the allocation of resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies.  Efforts
by the PRC government to slow the pace of growth of the Chinese economy could
result in decreased capital expenditure by gold and bauxite users, which in turn
could reduce demand for our products.
  We
risk the effects of general economic conditions in China.
  Sales we secure in China could be
adversely affected by a sustained economic recession in
China.  Therefore, a sustained economic recession in that country
could result in lower demand or lower prices for the gold and bauxite to be
produced by us.
  Uncertainties
with respect to the Chinese legal system could have a material adverse effect on
us.
  We plan to conduct some of our sales
and substantially all of our administrative activities in China.  We
will be generally subject to laws and regulations applicable to foreign
investment in China.  The PRC legal system is based, at least in part,
on written statutes.  Prior court decisions may be cited for reference
but may have limited precedential value.  It is our understanding that
since 1979, PRC legislation and regulations have significantly enhanced the
protections afforded to various forms of foreign investments in
China.  However, since these laws and regulations are relatively new
and the PRC legal system continues to rapidly evolve, the interpretations of
many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involves uncertainties.  We cannot predict
the effect of future developments in the PRC legal system, including the
promulgation of new laws, changes to existing laws or the interpretation or
enforcement thereof, the preemption of local regulations by national laws, or
the overturn of local government’s decisions by the superior
government.  These uncertainties may limit legal protections available
to us.  In addition, any litigation in China may be protracted and
result in substantial costs and diversion of resources and management
attention.
  
   -
33 -
  Risks
Related to Doing Business in Guinea and Mongolia
  Our
business operations are subject to and may be adversely affected by various
political and economic factors in Guinea and Mongolia.
  We plan to operate substantially all of
our business in Guinea and Mongolia, and like China, Guinea and Mongolia are
countries that are subject to various political, economic and other
uncertainties, including among other things, the risks of civil unrest,
expropriation, nationalization, renegotiation or nullification of existing
concessions, licenses, permits, approvals and contracts, taxation policies,
foreign exchange and repatriation restrictions, changing political conditions,
international monetary fluctuations, currency controls and foreign governmental
regulations that favor or require the awarding of contracts to local contractors
or require foreign contractors to employ citizens of, or purchase supplies from,
a particular jurisdiction.  In addition, if there is a dispute arising
from our operations, we may be subject to the exclusive jurisdiction of courts
in Guinea or Mongolia (or China) or may not be successful in subjecting foreign
persons to the jurisdiction of courts elsewhere.  We also may be
hindered or prevented from enforcing our rights with respect to a governmental
instrumentality because of the doctrine of sovereign immunity.  It is
not possible for us to accurately predict such developments or changes in laws
or policy or to what extent any such developments or changes may have a material
adverse effect on our business operations.
  Because we
anticipate that substantially all of our gold and bauxite mining interests
will be in Guinea and Mongolia, you will be exposed to political
risk.
  We anticipate that substantially all of
our gold and bauxite mining interests will be in Guinea and Mongolia and may be
affected by varying degrees of political instability in Guinea and Mongolia and
the policies of these and other nations.  These risks and
uncertainties include military repression, political and labor unrest, extreme
fluctuations in currency exchange rates, high rates of inflation, terrorism,
hostage taking and expropriation.  Our mining, exploration and
development activities may be affected by changes in government, political
instability and the nature of various government regulations relating to the
mining industry, including but not limited to, environmental regulation, labor
regulations, worker health and safety regulations, and royalties, taxes, import
and export laws and regulations.  Any changes in regulations or shifts
in political conditions are beyond our control and may adversely affect our
business and/or holdings.  Operations may be affected in varying
degrees by government regulations with respect to restrictions on production,
price controls, export controls, income taxes, expropriation of property,
environmental legislation, imposition of new, high government royalties and
ownership interests, and safety factors.  Our operations in Guinea and
Mongolia will entail significant governmental, economic, social, medical and
other risk factors common to all developing countries.  The status of
Guinea and Mongolia as developing countries may make it more difficult for us to
obtain any required financing because of the investment risks associated with
these countries.
  Because we
anticipate that substantially all of our gold and bauxite
mining operations will be in Guinea and Mongolia, we may be adversely affected
by economic uncertainty characteristic of developing
countries.
  Our operations in Guinea and Mongolia
may be adversely affected by the economic uncertainty characteristic of
developing countries.
 
 Operations in
Guinea are subject to risks relating to Guinea, which is in a region of the
world where there have been recent civil wars, revolutionary wars, and
internecine conflicts.  Although Guinea is a peaceful nation, external
or internal political forces could potentially create a political or military
climate that might cause a change in political leadership or the outbreak of
hostilities. Such a changecould result in our having to cease our
Guinea operations.
 
  -
34 -
  Operations in Mongolia are subject to
risks relating to Mongolia’s relatively recent transition to a market economy
administered by an elected government.  While Mongolia has recently
permitted private economic activities, the government of Mongolia has exercised
and continues to exercise substantial control over virtually every sector of
Mongolia’s economy through regulation and state ownership.  Our
prospects, results of operations and financial condition may be adversely
affected by political, economic and social uncertainties in Mongolia, changes in
Mongolia’s leadership, diplomatic developments and changes or lack of certainty
in the laws and regulations of Mongolia.
  Because
Mongolian regulations require the State Administration of Exchange Control to
approve the remittance of certain types of income out of Mongolia, we may be
unable to repatriate our earnings.  If we are unable to repatriate our
earnings from Mongolia, you may lose your investment.
  Mongolian regulations provide that,
subject to payment of applicable taxes, foreign investors may remit out of
Mongolia, in foreign exchange, profits or dividends derived from a source within
Mongolia.  Remittance by foreign investors of any other amounts
(including, for instance, proceeds of sale arising from a disposal by a foreign
investor of any of his investment in Mongolia) out of Mongolia is subject to the
approval of the State Administration of Exchange Control or its local branch
office.  No assurance can be given that such approval would be granted
if we dispose of all or part of our interest in our operations in
Mongolia.  Further, there can be no assurance that additional
restrictions on the repatriation of earnings in Mongolia will not be imposed in
the future.
  Gold
is principally a dollar-priced commodity, and most of our revenues are realized
in or linked to dollars while production costs are largely incurred in the
applicable local currency where the relevant operation is located.
  The weakening
of the dollar, without a corresponding increase in the dollar price of gold
against these local currencies, results in lower revenues and higher production
costs in dollar terms. Similarly, costs in dollar terms will increase where
local inflation rates are greater than dollar inflation rates and the local
currency does not depreciate against the dollar to compensate for this. In some
instances, as in Guinea, exchange rates are controlled by the relevant central
bank of the countries in which we operate and the exchange rate may be
artificially set to levels that may have a detrimental impact on the dollar cost
of locally sourced goods and services. Conversely, the strengthening of the
dollar, without a corresponding decrease in the dollar price of gold against
these local currencies yields significantly higher revenues and lower production
costs in dollar terms. If material, these exchange rate movements may have a
material adverse effect on our results of operations.
 
 Risks
Related to CWM Technology
  Our
business venture into the CWM business is subject to a high risk of
failure.
  Our business
venture into the CWM technology business through our investment in FCS and the
CWM technology is at a very early stage and is subject to a high risk of
failure. The CWM fuel technology has not been proven by the CWM Principals, FCS
or us to be a commercially viable fuel alternative. In order to establish
commercial viability, we will have to either undertake the construction and
operation of the contemplated demonstration facility or convert an existing
facility to be compatible with our CWM technology, both of which would be very
costly. Even if the demonstration facility were constructed or an existing
facility converted and operational, there is no assurance that the commercial
viability of this CWM process would be established or that we would be able to
expand the facility into a commercially viable operation or to generate revenues
from this technology.
  -
35 -
   We
are uncertain of our ability to protect technology through patents.
  Our ability to compete effectively
will depend on the success of FCS in protecting its proprietary technology, both
in the United States and abroad.  We believe that many patents have
already been issued in the area of CWM, both in the United States and abroad,
although to date we have not conducted a patent search. FCS directly, or through
us, plans to file for patent protection in the United States and possibly
outside the United States after it acquires the CWM technology.  No
assurances can be given that any patents will be issued to FCS or to
us.
  No assurance can be given that any
patents relating to the existing CWM technology will be issued from the United
States or any foreign patent offices, that it will directly or through us
receive any patents in the future based on its continued development of the CWM
technology, or that our CWM patent protection within and/or outside of the
United States will be sufficient to deter others, legally or otherwise, from
developing or marketing competitive products utilizing FCS’s CWM
technologies.
  If FCS directly, or through us,
obtains patents, there can be no assurance that they will be enforceable to
prevent others from developing and marketing competitive products or
methods.  If FCS directly, or through us, brings an infringement
action relating to any future patents, it may require the diversion of
substantial funds from its or our operations and may require management to
expend efforts that might otherwise be devoted to its or our
operations.  Furthermore, there can be no assurance that FCS or us
will be successful in enforcing our CWM patent rights.
  Further, if any patents issue, there
can be no assurance that patent infringement claims in the United States or in
other countries will not be asserted against FCS or us by a competitor or
others, or if asserted, that we will be successful in defending against such
claims.  If one of our products is adjudged to infringe patents of
others with the likely consequence of a damage award, we may be enjoined from
using and selling such product or be required to obtain a royalty-bearing
license, if available on acceptable terms.  Alternatively, in the
event a license is not offered, we or FCS might be required, if possible, to
redesign those aspects of the product held to infringe so as to avoid
infringement liability.  Any redesign efforts undertaken by FCS or us
might be expensive, could delay the introduction or the re-introduction of our
products into certain markets, or may be so significant as to be
impractical.
  We
are uncertain of the ability of the CWM Principals, FCS or us to protect the CWM
proprietary technology and information.
  In addition to seeking patent
protection, FCS directly, or through us, will rely on trade secrets, know-how
and continuing technological advancement to achieve and thereafter maintain a
competitive advantage with respect to the CWM technology.  Although we
have entered into and FCS intends to enter into confidentiality and invention
agreements with employees, consultants, certain potential customers and
advisors, no assurance can be given that such agreements will be honored or that
we or FCS will be able to effectively protect our rights to our unpatented trade
secrets and know-how.  Moreover, no assurance can be given that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets and
know-how.
  We
have limited marketing capability
  We have limited marketing
capabilities and resources to expend on marketing the CWM
technology.  In order to achieve market penetration we will have to
undertake significant efforts and expenditures to create awareness of, and
demand for, our CWM technology and products.  Our ability to penetrate
the market and build our customer base will be substantially dependent on our
marketing efforts, including our ability to encourage power plants to convert
the plants to be compatible with our CWM technology.  No assurance can
be given that we will succeed. Our failure to successfully develop our marketing
capabilities, both internally and through third-party joint ventures, would have
a material adverse effect on our business, operating results and financial
condition.
  We
are dependent on key personnel
  Our success in the CWM technology
business will be largely dependent upon the efforts of the two principals who
are developing the CWM technology and the employees hired by FCS or by us to
assist such principals in developing such technology.  The loss of the
services of any of these individuals could have a material adverse effect on our
CWM business and prospects.  There can be no assurance that we will be
able to retain the services of such individuals in the future.  Our
success will be dependent upon our ability to hire and retain qualified
technical, research, management, marketing and financial personnel. We will
compete with other companies with greater financial and other resources for such
personnel.  Although FCS has not to date experienced difficulty in
attracting qualified personnel, there can be no assurance that it will be able
to retain the personnel it hires or acquire additional qualified personnel as
and when needed.
  
   -
36 -
  ITEM 3 – QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
 
 A smaller
reporting company is not required to provide the information required by this
Item.
 
 ITEM
4 - CONTROLS AND PROCEDURES
 
 EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES.   Our management, with the participation of our
president and our chief financial officer, carried out an evaluation of the
effectiveness of our "disclosure controls and procedures" (as defined in
the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e)
and 15-d-15(e)) as of the end of the period covered by this report (the
"Evaluation Date"). Based upon that evaluation, our President and our
Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports that we file or submit under
the Exchange Act (i) is recorded, processed, summarized and reported,
within the time periods specified in the SEC's rules and forms and (ii) is
accumulated and communicated to our management, including our President and
our Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
  CHANGES IN INTERNAL CONTROL OVER
FINANCIAL REPORTING.   There were no changes in our internal
controls over financial reporting that occurred during the period that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting. We believe that a control system, no matter
how well designed and operated, cannot provide absolute assurance that the
objectives of the control system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within any company have been detected.
 
 PART II - OTHER INFORMATION
 
 ITEM
4.                      SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None
  
 ITEM
6.
 Exhibit
              
              Description21
              
              List
      of subsidiaries31.1
              
              Certification
      of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              
              Certification
      of Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.32
              
              Certification
      of the Company’s Chief Executive Officer and Chief Financial Officer,
      pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
 
  -
37 -
  
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 AURASOURCE,
      INC.Date:
      February 13, 2009
              /s/ 
      PHILIP LIUName:
      PhilipTitle: Chief
      Executive OfficerDate:
      February 13, 2009
              /s/ 
      ERIC STOPPENHAGENName:
      Eric StoppenhagenTitle: Chief
      Financial Officer
 
 
 
   -
38 -
  EXHIBIT
INDEX
 
 Exhibit
              
              Description21
              
              List
      of subsidiaries31.1
              
              Certification
      of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              
              Certification
      of Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
      as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
      2002.32
              
              Certification
      of the Company’s Chief Executive Officer and Chief Financial Officer,
      pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
  -
39 -